CAIA FINAL ALL EXAMS SET QUESTIONS AND
ANSWERS SURE A+
✔✔Standard III(E) Preservation of Confidentiality - ✔✔Members and Candidates must
keep information about current, former, and prospective clients confidential unless:
The information concerns illegal activities on the part of the client;
Disclosure is required by law; or
The client or prospective client permits disclosure of the information.
✔✔Standard IV: Duties to Employers - ✔✔A. Loyalty
B. Additional Compensation Arrangements
C. Responsibilities of Supervisors
✔✔Standard IV(A) Loyalty - ✔✔In matters related to their employment, Members and
Candidates must act for the benefit of their employer and not deprive their employer of
the advantage of their skills and abilities, divulge confidential information, or otherwise
cause harm to their employer.
✔✔Standard IV(B) Additional Compensation Arrangements - ✔✔Members and
Candidates must not accept gifts, benefits, compensation or consideration that
,competes with, or might reasonably be expected to create a conflict of interest with their
employers unless they obtain written consent from all parties involved.
✔✔Standard IV(C) Responsibilities of Supervisors - ✔✔Members and Candidates must
make reasonable efforts to ensure that anyone subject to their supervision or authority
complies with applicable laws, rules, regulations, and the Code and Standards.
✔✔Standard V: Investment Analysis, Recommendations, and Actions - ✔✔A. Diligence
and Reasonable Basis
B. Communication with Clients and prospective clients
C. Record Retention
✔✔Standard V(A) - Diligence and Reasonable Basis - ✔✔Members and Candidates
must:
1. Exercise diligence, independence, and thoroughness in analyzing investments,
making investment recommendations, and taking investment actions.
2. Have a reasonable and adequate basis, supported by appropriate research and
investigation, for any investment analysis, recommendation, or action.
✔✔Standard V(B) - Communication with Clients and Prospective Clients - ✔✔Members
and candidates must:
1. Disclose to clients and prospective clients the basic format and general principles of
the investment process used to analyze investments, select securities, and construct
portfolios and must promptly disclose any changes that might materially affect those
processes
2. Disclose to clients and prospective clients significant limitations and risks accounted
with the investment process
3. Use reasonable judgement to identify with factors are important to their investment
analyses, recommendations, or actions and include those factors in communications
with clients and prospective clients
4. Distinguish between fact and opinion in the presentation of investment analyses and
recommendations
✔✔Standard V(C) Record Retention - ✔✔Members and Candidates must develop and
maintain appropriate records to support their investment analyses, recommendations,
actions, and other investment-related communications with clients and prospective
clients.
✔✔Standard VI: Conflicts of Interest - ✔✔A. Disclosure of Conflicts
B. Priority of Transactions
C. Referral Fees
✔✔Standard VI(A) - Disclosure of Conflicts - ✔✔Members and Candidates must make
full and fair disclosure of all matters that could reasonably be expected to impair their
independence and objectivity or interfere with respective duties to their clients,
,prospective clients, and employer. Members and Candidates must ensure that such
disclosures are prominent, are delivered in plain language, and communicate the
relevant information effectively.
✔✔Standard VI(B) - Priority of Transactions - ✔✔Investment transactions for clients and
employers must have priority over investment transactions in which a Member or
Candidate is the beneficial owner.
✔✔Standard VI(C) Referral Fees - ✔✔Members and Candidates must disclose to their
employer, clients, and prospective clients, as appropriate, any compensation,
consideration, or benefit received from or paid to others for the recommendation of
products or services.
✔✔Traditional Investments - ✔✔include publicly traded equities, fixed-income
securities, and cash
✔✔Real Assets - ✔✔associated with investments that directly control non-financial
assets and represent actual rights to consumption rather than financial claims to cash
flows generated by the tangible and intangible assets of a firm. Examples:
1. Real Estate (land and permanent improvements to the land; land- raw land,
timberland and farmland)
2. Infrastructure investments (investments represent claims on the cash flows generated
by the assets)
3. intellectual property
4. Natural Resources
5. Commodities
✔✔Hedge Funds - ✔✔Private investment vehicles that typically use leverage,
derivatives, and long and short investment strategies. Minimal regulatory restrictions.
✔✔Private Equity - ✔✔Includes both debt and equity securities that are not publicly
traded. Examples:
1. Venture Capital
2. LBOs
3. Mezz debt
4. Distressed Debt
✔✔Structured Products - ✔✔segment the cash flows of traditional investments or link
the product's returns to one or more market values in order to achieve certain risk
✔✔Prime Broker - ✔✔Executes trades on behalf of an alternative investment manager,
lends securities to sell short, provides research data, produces account statements and
other documentation, and provides financing for leverage
, ✔✔Bank Structures - ✔✔1. US- Investment Banks and Commercial Banks are separate
in the US
2. Germany- "Universal Banking"- institutions that allow both commercial and
investment banking
3. UK- similar to US, separates IB and CB
4. Japan- Multiple corporations are linked together via cross ownership structures
"Keiretsu"; reduces the number of public shareholders and allows banks to have
considerable authority
✔✔Securities Act of 1933 - ✔✔Governs new securities issues and requires the
company to disclose relevant information, to register new issues, and to disseminate a
prospectus
✔✔Investment Company Act of 1940 - ✔✔instituted to regulate investment pools
(mutual funds). Hedge funds use exemptions to avoid registering
✔✔Investment Advisors act of 1940 - ✔✔requires that investment advisors register with
the SEC. hedge funds use exemptions
✔✔Regulation T margin rule - ✔✔Fed rule conceding leverage- stipulates that only 50%
of the value of a security can be purchased on margin. HFs must avoid falling under this
rule bc leverage
✔✔Forward Contract - ✔✔A bilateral contract that obligates one party to buy and the
other to sell a specific quantity of an asset, at a set price, on a specific date in the
future;
No premium is paid to get into the contract ;
Used to hedge risk and speculate on prices;
Buyer has long position;
Seller has short position;
Can terminate a forward contract by entering into the opposite position in another trade
✔✔notional principal - ✔✔Face amount on the underlying asset upon which cash flows
on a derivative instrument are based (i.e. forward or swap)
✔✔return on notional principal - ✔✔Gain or loss on the derivative instrument divided by
the notional principle
✔✔Ex Post Pricing Model - ✔✔Describes "after the fact" historical returns. Focuses on
realized returns.
✔✔Ex Ante Pricing Model - ✔✔Describes "before the fact" expected future returns.
✔✔Skewness - ✔✔The extent to which the distribution data is not symmetric about its
mean
ANSWERS SURE A+
✔✔Standard III(E) Preservation of Confidentiality - ✔✔Members and Candidates must
keep information about current, former, and prospective clients confidential unless:
The information concerns illegal activities on the part of the client;
Disclosure is required by law; or
The client or prospective client permits disclosure of the information.
✔✔Standard IV: Duties to Employers - ✔✔A. Loyalty
B. Additional Compensation Arrangements
C. Responsibilities of Supervisors
✔✔Standard IV(A) Loyalty - ✔✔In matters related to their employment, Members and
Candidates must act for the benefit of their employer and not deprive their employer of
the advantage of their skills and abilities, divulge confidential information, or otherwise
cause harm to their employer.
✔✔Standard IV(B) Additional Compensation Arrangements - ✔✔Members and
Candidates must not accept gifts, benefits, compensation or consideration that
,competes with, or might reasonably be expected to create a conflict of interest with their
employers unless they obtain written consent from all parties involved.
✔✔Standard IV(C) Responsibilities of Supervisors - ✔✔Members and Candidates must
make reasonable efforts to ensure that anyone subject to their supervision or authority
complies with applicable laws, rules, regulations, and the Code and Standards.
✔✔Standard V: Investment Analysis, Recommendations, and Actions - ✔✔A. Diligence
and Reasonable Basis
B. Communication with Clients and prospective clients
C. Record Retention
✔✔Standard V(A) - Diligence and Reasonable Basis - ✔✔Members and Candidates
must:
1. Exercise diligence, independence, and thoroughness in analyzing investments,
making investment recommendations, and taking investment actions.
2. Have a reasonable and adequate basis, supported by appropriate research and
investigation, for any investment analysis, recommendation, or action.
✔✔Standard V(B) - Communication with Clients and Prospective Clients - ✔✔Members
and candidates must:
1. Disclose to clients and prospective clients the basic format and general principles of
the investment process used to analyze investments, select securities, and construct
portfolios and must promptly disclose any changes that might materially affect those
processes
2. Disclose to clients and prospective clients significant limitations and risks accounted
with the investment process
3. Use reasonable judgement to identify with factors are important to their investment
analyses, recommendations, or actions and include those factors in communications
with clients and prospective clients
4. Distinguish between fact and opinion in the presentation of investment analyses and
recommendations
✔✔Standard V(C) Record Retention - ✔✔Members and Candidates must develop and
maintain appropriate records to support their investment analyses, recommendations,
actions, and other investment-related communications with clients and prospective
clients.
✔✔Standard VI: Conflicts of Interest - ✔✔A. Disclosure of Conflicts
B. Priority of Transactions
C. Referral Fees
✔✔Standard VI(A) - Disclosure of Conflicts - ✔✔Members and Candidates must make
full and fair disclosure of all matters that could reasonably be expected to impair their
independence and objectivity or interfere with respective duties to their clients,
,prospective clients, and employer. Members and Candidates must ensure that such
disclosures are prominent, are delivered in plain language, and communicate the
relevant information effectively.
✔✔Standard VI(B) - Priority of Transactions - ✔✔Investment transactions for clients and
employers must have priority over investment transactions in which a Member or
Candidate is the beneficial owner.
✔✔Standard VI(C) Referral Fees - ✔✔Members and Candidates must disclose to their
employer, clients, and prospective clients, as appropriate, any compensation,
consideration, or benefit received from or paid to others for the recommendation of
products or services.
✔✔Traditional Investments - ✔✔include publicly traded equities, fixed-income
securities, and cash
✔✔Real Assets - ✔✔associated with investments that directly control non-financial
assets and represent actual rights to consumption rather than financial claims to cash
flows generated by the tangible and intangible assets of a firm. Examples:
1. Real Estate (land and permanent improvements to the land; land- raw land,
timberland and farmland)
2. Infrastructure investments (investments represent claims on the cash flows generated
by the assets)
3. intellectual property
4. Natural Resources
5. Commodities
✔✔Hedge Funds - ✔✔Private investment vehicles that typically use leverage,
derivatives, and long and short investment strategies. Minimal regulatory restrictions.
✔✔Private Equity - ✔✔Includes both debt and equity securities that are not publicly
traded. Examples:
1. Venture Capital
2. LBOs
3. Mezz debt
4. Distressed Debt
✔✔Structured Products - ✔✔segment the cash flows of traditional investments or link
the product's returns to one or more market values in order to achieve certain risk
✔✔Prime Broker - ✔✔Executes trades on behalf of an alternative investment manager,
lends securities to sell short, provides research data, produces account statements and
other documentation, and provides financing for leverage
, ✔✔Bank Structures - ✔✔1. US- Investment Banks and Commercial Banks are separate
in the US
2. Germany- "Universal Banking"- institutions that allow both commercial and
investment banking
3. UK- similar to US, separates IB and CB
4. Japan- Multiple corporations are linked together via cross ownership structures
"Keiretsu"; reduces the number of public shareholders and allows banks to have
considerable authority
✔✔Securities Act of 1933 - ✔✔Governs new securities issues and requires the
company to disclose relevant information, to register new issues, and to disseminate a
prospectus
✔✔Investment Company Act of 1940 - ✔✔instituted to regulate investment pools
(mutual funds). Hedge funds use exemptions to avoid registering
✔✔Investment Advisors act of 1940 - ✔✔requires that investment advisors register with
the SEC. hedge funds use exemptions
✔✔Regulation T margin rule - ✔✔Fed rule conceding leverage- stipulates that only 50%
of the value of a security can be purchased on margin. HFs must avoid falling under this
rule bc leverage
✔✔Forward Contract - ✔✔A bilateral contract that obligates one party to buy and the
other to sell a specific quantity of an asset, at a set price, on a specific date in the
future;
No premium is paid to get into the contract ;
Used to hedge risk and speculate on prices;
Buyer has long position;
Seller has short position;
Can terminate a forward contract by entering into the opposite position in another trade
✔✔notional principal - ✔✔Face amount on the underlying asset upon which cash flows
on a derivative instrument are based (i.e. forward or swap)
✔✔return on notional principal - ✔✔Gain or loss on the derivative instrument divided by
the notional principle
✔✔Ex Post Pricing Model - ✔✔Describes "after the fact" historical returns. Focuses on
realized returns.
✔✔Ex Ante Pricing Model - ✔✔Describes "before the fact" expected future returns.
✔✔Skewness - ✔✔The extent to which the distribution data is not symmetric about its
mean
